Parenting & Family

set up life insurance or will first?

  • Last Updated:
  • May 23rd, 2017 2:55 pm
[OP]
Sr. Member
Nov 25, 2008
544 posts
6 upvotes

set up life insurance or will first?

hi i got two small kids.

For those who have small kids, what would be wise move ?
Setting up a life insurance or a will first?

Curious what type of life insurance did you have?

Thanx
TC
14 replies
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Mar 23, 2008
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Edmonton
They're two separate and fairly unrelated things. Start the process with both at the same time. Your life insurance will typically be directed to your spouse (and vice-versa), and the will handles things if both of you pass away (separately or together).

You need to figure out how much money the surviving spouse would need to live after you're gone. In my case, my spouse can survive on her own if our house was paid off, so my insurance covers that plus my kids' education needs. People with younger kids might have higher needs due to child-care or inability of the surviving spouse to work full-time due to taking care of the kids.

Sit down and talk to an insurance broker. It's not hard. They'll walk you through it.

C
Sr. Member
Nov 13, 2013
591 posts
199 upvotes
A will is critical if both parents die or you have significant assets. I don't see the point if you are talking about basically giving the house and any savings to your spouse. You can do this without a professional will. So I would argue life insurance is more important. Also you can find out you have terminal cancer and still write a will. Can't do that with life insurance.

For life insurance you can talk to an expert who will generally get a hefty commission for any life insurance products you buy. Not surprisingly I tend to think they recommend too much insurance. You can read articles that explain the types of insurance and if you are good with math you can crunch the numbers based on different assumptions about how much money you need and or want.
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Mar 23, 2008
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Your will will also direct guardians for your children as well as setting them up with assets. You should also consider personal directives (aka "living will") to cover things like medical actions to be taken if you can no longer make decisions for yourself. The living will can be done on your own, but you'll need to do some research to determine what should be in it.

The Government of Alberta has this page available:
http://www.humanservices.alberta.ca/gua ... works.html

C
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Apr 8, 2007
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We have two little kids and just did this.

As already mentioned, they are separate and unrelated. You can do both concurrently.

I'd do life insurance sooner than later - your age and medical health affects premiums. We are paying higher premiums as we procrastinated and my hubby just turned 40. Would've been cheaper if we'd done it earlier. We went with a term insurance policy that will cover off mortgage, school for the kids and leave a bit in the bank.

A key thing about wills at our age is specifying guardianship of your children and the arrangements re: finances for them. How would you want your assets used? e.g. put in a trust until they are 25, etc. When you make a will, your lawyer will suggest making it as generic as possible, so you don't need to change it all the time. Beneficiaries, etc. are specified in your insurance and accounts so it's important to revisit those.

Having a personal and financial power of attorney is crucial as well. Just lost my best friend from cancer in her 30s. Her husband was able to use her Power of Attorney to change beneficiaries on a few old work pension accounts she'd forgotten about and access to information that would've been impossible otherwise while she was in the hospital. Making those changes are still easier when you're still alive with a Power of Attorney than after the fact with a will. The personal Power of Attorney is important to ensure that your wishes are carried out if you're incapacitated. Things like a DNR, measures to prolong life, etc. are covered.
Newbie
Oct 24, 2011
59 posts
11 upvotes
Markham
Agree with above, insurance and will has nothing to do with each other, therefore you can start both at the same time. If your situation is not overly complicated, you can start with a basic will, and make changes along the way (you can review it every few years or when there are changes to your situation e.g. 2nd child/3rd child...)

Here's what I have (and what i would recommend regardless of age):
You and Spouse -
Set up a budget and use it to buy a (permanent) whole life PLUS a term life that would cover your liabilities
For example, if your budget for yourself is $200, and your estimated liability is $800,000 (some mortgage and living expense for young kids).
Depending on your age, you can buy $80,000 whole life insurance for $100/mth, and 720,000 for $100/mth. Buy a whole life that is limited pay (i.e. you only need to pay for a pre-determined number of years). Same for your spouse.

For the kids - two products that I bought.
Whole life insurance - find the ones with better returns. Two reasons, insurance is cheap to get when they are young and healthy and they can potentially use the money when they are older (>30 nowadays).
Critical Illness - Three reasons
1) it's relatively cheap,
2) some insurance company provide a return of premium (75%) at age 25, so it's pretty much free.
3) knock on wood if (and unfortunately, nowadays this 'if' is getting more and more common) my children experience any critical illness, I don't have to worry about taking time from work to take care of them)

Keep is mind that everyone is different, talk to different ppl (not just Financial/insurance advisors) and get a sense of what you want and need.
Sr. Member
Aug 16, 2009
647 posts
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Toronto
Question: If a couple has no mortgage and minimal debt, is it still advisable to get life insurance?
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michiebaby wrote:
May 3rd, 2017 4:10 pm
Question: If a couple has no mortgage and minimal debt, is it still advisable to get life insurance?
Do they have kids? Can either spouse comfortably survive financially if one of them was out of the picture? If either spouse would have to downsize or take in boarders or something to make ends meet, then they should have insurance.

C
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Mar 29, 2008
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Disagree that they're unrelated, though they may be for OP. If you plan on doing some real estate and tax planning they're related, if there are previous marriages, they may be related, any adult children etc.
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random pattern wrote:
May 3rd, 2017 8:01 pm
Disagree that they're unrelated, though they may be for OP. If you plan on doing some real estate and tax planning they're related, if there are previous marriages, they may be related, any adult children etc.
Completely agree with this if you have complex assets, own your own business, multiple properties, previous marriages, adult children, etc. I was thinking unrelated if all you own is your house and are married only once and have 2 little kids (mine are both under 5 lol).
Deal Fanatic
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Jul 12, 2003
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michiebaby wrote:
May 3rd, 2017 4:10 pm
Question: If a couple has no mortgage and minimal debt, is it still advisable to get life insurance?
I would, just to have enough to cover final expenses and not struggle financially when you already lost your love one (unexpected)
You never know in what financial situation you are at when you lose your love one. You may not have enough savings at that time and if the money is in your spouse's account, it will takes a while before his/her money going to anywhere.

Pay out from life insurance claims is not taxable neither.
If you are 55+..take a small 25k permanent policy
if you are younger, maybe 100k.

I have 100k that I took out at 20s and I bought 50k for a spouse after we got married.
We both have a Term life just to protect the balance of our mortgage.

Other than a will, assigned a POA as well in case one for very sick or paralyzed.
Last edited by MP3_SKY on May 18th, 2017 2:54 pm, edited 1 time in total.
Retired Forum Moderator February 2009 - June 2015
Newbie
Oct 24, 2011
59 posts
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Markham
michiebaby wrote:
May 3rd, 2017 4:10 pm
Question: If a couple has no mortgage and minimal debt, is it still advisable to get life insurance?
Other than current mortgage and debt, there are at least 3 factors you can consider:
1) using your insurance for funeral expenses - the simplest funeral can cost you up to 20-25k
2) using your insurance policy to subsidize your retirement.
3) you don't have debts now doesn't mean you won't have debt in the future. Investment properties? Cars? or having kids in the future? Remember the two main factor (aside from smoking) is age and health, therefore if you might have debt in the future, it would be a good idea to invest in an insurance policy now.

A lot of people have misunderstanding about savings inside an insurance policy, my advice is to find a knowledgeable advisor that can explain to you how insurance can work for you.
Deal Guru
Mar 23, 2009
13645 posts
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Toronto
Don't forget about disability insurance.
Sorkid49 wrote:
May 3rd, 2017 2:51 pm
Agree with above, insurance and will has nothing to do with each other, therefore you can start both at the same time. If your situation is not overly complicated, you can start with a basic will, and make changes along the way (you can review it every few years or when there are changes to your situation e.g. 2nd child/3rd child...)

Here's what I have (and what i would recommend regardless of age):
You and Spouse -
Set up a budget and use it to buy a (permanent) whole life PLUS a term life that would cover your liabilities
For example, if your budget for yourself is $200, and your estimated liability is $800,000 (some mortgage and living expense for young kids).
Depending on your age, you can buy $80,000 whole life insurance for $100/mth, and 720,000 for $100/mth. Buy a whole life that is limited pay (i.e. you only need to pay for a pre-determined number of years). Same for your spouse.

For the kids - two products that I bought.
Whole life insurance - find the ones with better returns. Two reasons, insurance is cheap to get when they are young and healthy and they can potentially use the money when they are older (>30 nowadays).
Critical Illness - Three reasons
1) it's relatively cheap,
2) some insurance company provide a return of premium (75%) at age 25, so it's pretty much free.
3) knock on wood if (and unfortunately, nowadays this 'if' is getting more and more common) my children experience any critical illness, I don't have to worry about taking time from work to take care of them)

Keep is mind that everyone is different, talk to different ppl (not just Financial/insurance advisors) and get a sense of what you want and need.
I looked at both critical illness insurance and whole life insurance and felt that the expense on those in my situation would not be money well spent. Whole life in general just seemed like a bad idea. Most people should stick with term life. Critical illness insurance didn't make a lot of sense to me either, given the number of exclusions they had and the overall cost. Critical illness insurance is way more expensive than life insurance, given the relatively small payouts. Collection of critical illness insurance payouts isn't always easy either. I know they address different issues, but in an environment where we have government subsidized healthcare and relatively generous TFSA contribution room, I'd rather put the money into a TFSA than critical illness insurance. You could also put money into both if you can afford it but even then I don't think it's necessarily a good idea.

IMHO, what is necessary if you have kids is term life insurance, disability insurance, and a will. If you don't have kids, then you can often forget about life insurance completely, but you'd still want disability insurance and a will. And save in a TFSA for an emergency fund. Also, it can beneficial to have a HELOC as well, if you're someone with home equity and who isn't overly tempted by having extra credit.
Newbie
Oct 24, 2011
59 posts
11 upvotes
Markham
EugW wrote:
May 19th, 2017 10:54 am
Don't forget about disability insurance.


I looked at both critical illness insurance and whole life insurance and felt that the expense on those in my situation would not be money well spent. Whole life in general just seemed like a bad idea. Most people should stick with term life. Critical illness insurance didn't make a lot of sense to me either, given the number of exclusions they had and the overall cost. Critical illness insurance is way more expensive than life insurance, given the relatively small payouts. Collection of critical illness insurance payouts isn't always easy either. I know they address different issues, but in an environment where we have government subsidized healthcare and relatively generous TFSA contribution room, I'd rather put the money into a TFSA than critical illness insurance. You could also put money into both if you can afford it but even then I don't think it's necessarily a good idea.

IMHO, what is necessary if you have kids is term life insurance, disability insurance, and a will. If you don't have kids, then you can often forget about life insurance completely, but you'd still want disability insurance and a will. And save in a TFSA for an emergency fund. Also, it can beneficial to have a HELOC as well, if you're someone with home equity and who isn't overly tempted by having extra credit.
I understand where you are coming from and this is exactly why I always recommend the return of premium option (available with a lot of providers). This is definitely not for everyone, as it is added expense for your family. Keep in mind that "insurance" in general is always based on the "what if's" scenario. What if I pass away? What If I can no longer work due to critical illness? Mind you critical illness is not about exclusion, but rather inclusion, i.e. whether or not one's illness falls under the policy.

As for whole life, it depends on how you look at it. Term is obviously the cheaper option, but what if you still want insurance when you are 65? how about 85? Generally term insurance will cover you up to 85, and that is IF you can afford it. You are talking about couple thousand dollars of premium per month for the same coverage? would you continue to pay the premium? Whereas whole life insurance are set up nowadays that you can pay it off in 10/15/20 years, guaranteed. Say if you are 30 now, but the time you are 45, you have permanent insurance to cover your life, plus the face amount will continue to grow. That's another reason why I bought it for my kids, it's cheap, and by the time they are of age, they don't really have to worry about permanent insurance anymore, Furthermore, When your kids are retiring, they can use the money in the policy tax free.

Every family's philosophy is different, and to be honest, no one really expect the worst to hit us.

Personally i find critical illness is > disability if you are employed, since EI and company insurance will cover most of your income. Of course unless you are the CEO or upper management... but then we wouldn't be having this conversation =)

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